A New Look at Affordability

To say affordability is an important issue in this region would be an understatement. Vancouver has been recognized as one of the least affordable cities in the world. However, just because we view something as important doesn’t mean we’re right about it. Now I’m not saying that “No, Vancouver is very affordable”. What I’m saying is our conventional definition of affordability gets which parts of the region are affordable and which ones aren’t wrong.

When we think of affordability, we usually think only of housing costs. A common threshold used for affordability is spending less than 30% of income on housing. However, looking at housing costs alone leaves a false impression that it is more affordable to live in the suburbs as housing costs are generally lower. What we forget is that in the suburbs you often have to own a car and with that comes with high transportation costs. In most cases, these additional costs offset any savings in housing expenditures.

So when we think of affordability, we should really we should be thinking of housing AND transportation costs. This is what the Center for Neighbourhood Technology has done; they have created a Housing and Transportation (H+T) Affordability Index that defines affordable as a household spending less than 45% of its earnings on housing and transportation. For the past few months, I’ve been part of a group examining affordability in Greater Vancouver when looking at both housing and transportation costs. We created a similar index using 2006 Census data and 2011 Translink Trip Diary data.

We wondered: with this new definition of affordability, how does our view of what is affordable and what is not change?What areas in Metro Vancouver are the most (and least) affordable and what policiescould make the biggest difference in improving affordability?

How does including transportation costs change our view of affordability?

It turns out, a lot. Below is an map comparing the conventional definition of affordability with our new housing and transportation definition. (Yellow means affordable and blue means unaffordable.)

It is immediately apparent that our region is considerably less affordable when we factor in transportation costs. What is less apparent is that some census tracts in the City of Vancouver became affordable with our new definition. Overall though, our region is significantly less affordable than we think it is. A scary thought.

So, the truth is Vancouver (proper) is more affordable than we think, but the region is much less affordable than we think. And the main cause of that is transportation costs (Yellow is <15% of household income)

Notice the sliver of yellow following the Expo Line

Where does affordability lie?

The most affordable areas in the region were found to be the West End and Metrotown, whereas the least were found at the periphery in Surrey, Coquitlam, Port Moody and West Vancouver.

Areas that are walkable, centrally-located and have good access to transit are much more affordable than those that are car-oriented and where land uses are segregated.

How do we make Metro Vancouver more affordable?

The areas we should be focusing affordability improvements are areas that are unaffordable and where people are experiencing it. (Reducing living expenses for West Vancouver millionaires is not a priority)

The image above is a plot of all the census tracts in Metro Vancouver based on actual affordability and experienced affordability. We calculated experienced affordability by using the income of local residents instead of for the whole region. The dividing line for both axes is the 45% affordability threshold. Overall, the ‘cloud’ appears centred with many areas on both sides of the affordability divides.

The area of greatest concern is the top right quadrant. These are areas with very high housing and transportation costs where the residents are spending more than 45% of their income on housing and transportation. Though the entire ‘cloud’ appears to be centred around the threshold, it is not the case for different cities in the region.

Here is Vancouver…

…and here is Surrey:

Vancouver has only when census tract in our ‘Greatest Concern’ quadrant, whereas Surrey has about half of its census tracts here. This image shows there is clear and pressing need for affordability improvements in Surrey and other suburbs such as Coquitlam, White Rock, Langley and Maple Ridge where people are really experiencing a lack of affordability.

When it comes to improving affordability, improving transit and walkability in the suburbs makes a lot of sense. The Evergreen Line (contrary to what some believe) and Surrey Rapid Transit would greatly reduce transportation costs and improve affordability.

In conclusion, including transportation in the affordability equation makes it clear that it is the Urbs, not the Suburbs, that are truly affordable and that if we really want to improve affordability in Metro Vancouver, improving transit and creating a more walkable environment in places like Surrey would make the biggest difference.

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Comments

April 26, 2013

MA LUO

Well done!!!

April 27, 2013

Tim

It really depends on where your life is centered and how you choose to get places. For example I live in Newton close to the town centre and we walk to the stores all the time. I have 2 transit options that I use frequently and I bike places instead of driving. I do own a car for my family of 3 and we have used just over 1/2 tank in 3 weeks. If I went to church close by or didn’t send my children to christian school in the future my transportation costs could stay low.

April 28, 2013

Hoon

I am totally convinced, Haber! It is an excellent post, and I hope to run this kind of analysis on GTA. I am always in doubt for my neighbourhood!

Thanks for the kudos! The great thing about our analysis is that it could be duplicated for any other region in Canada.

April 29, 2013

Jesse Hausner

There are a few fundamental flaws with this analysis (and about 5 other studies I’ve read that come to similar conclusions). The first is, that you don’t actually show what data you used and what assumptions you used. Please post those somewhere and link to them because in the other 5, the assumptions were flawed. For example they assumed 1 worker worked in Vancouver in every single calculation when according to stats Canada only about 35% of workers in metro-Vancouver actually physically work in Vancouver. They also often used “average income” instead of “median income”. Average income results in a completely false set of numbers unfortunately but your above study doesn’t actually say what you used. It simply says “we used income from residents.”

Next, did you take into account that statistically most people outside of Downtown Vancouver actually own a car? The other studies often assumed A) you live in the suburbs you own a car and B) you live in Vancouver you don’t own a car. This tends to be incorrect though as only people that live right downtown tend to not have cars. Those in other areas of Vancouver own cars. Drive down every street in Vancouver and you will find parked cars all over the place. So the car ownership argument goes right out the window because it becomes a wash.

You are then dealing with comparing gas usage and transit passes between the suburbs and Vancouver and those differences are hugely minor if someone in Vancouver owns a car and someone in the suburb owns a car.

Secondly, these studies seem to define affordability contrary to what banks define affordability meaning they are rooted in theory on a university white board and in a paper and not rooted in “what a bank will lend me”. For example, based on my income, what mortgage will I QUALIFY for regardless of what a study says I can afford.

That means some places that in Vancouver become more “affordable” according to these studies most people can’t qualify for the housing portion no matter how much they jump up and down.

What do I mean? Let’s use me as an example. A few qualifiers, I live in Surrey and work in the suburbs. I drive to work as taking the bus adds 2 hours of commute time per day given where I work. My wife works downtown and takes SkyTrain to work every day. We live as close to SkyTrain as possible to make her commute easier as my commute by car no matter where I live in Surrey, is roughly 30 minutes each way.

Well I buy a townhouse in Surrey for $350,000, the bank will say with a combined income of $137,000 per year, NO PROBLEM and I get my mortgage.

Now let’s add transportation in there. I’ve done the calculation based on my own life and the cars I own, and we get $300 on insurance, $200 on gas, $170 on transit pass, $20 on oil, $2,000 on mortgage, $200 on strata. So nice round number that’s about $2,900 per month or around 25% gross income. So we fall well into the affordability index out here.

I instead look to buy a townhouse on Cambie street as I want to be on Canada Line, same size, same age, my wife’ commute is considerably less, and my commute is about the same (which it would be) and the price is $950,000 (which they are check MLS). Now let’s assume for a moment that I ditch all my vehicles and I’ll take transit out to Surrey , White Rock, and Langley to visit my family which is entirely practical , but let’s assume. So mortgage of $855,000 (10% down) that works out to a mortgage of about $4,000 per month. Hmm…. ok wait let’s assume I can put 20% down. That’s a mortgage of $760,000. Ok that’s $3600 per month. Oh… hmmm… we’re still $700 more than where I live now and we have no cars to speak of or even a bus pass in the equation. Those numbers though still fall into your definition of affordability though. So it is entirely affordable.

Now what the above also fails to think of again is the fact that a household making combined $137,000 per year, according to almost every single lender out there, can afford a mortgage of between $450,000 and $650,000 depending on condo and property tax fees, assuming a 5-15% down payment, and 0 debts. Trust me, I’ve asked. I’ve been to a lot of banks when shopping for my townhouse. The MAXIMUM they said we qualify for is $650,000 and I kid you not, we have $0 debts. $0. Cars are paid for, no credit cards, just gas, insurance, and food, all things they don’t factor in.

Finally, to add substance to the above, if I hover over Mount Pleasant on MLS (an area your study labels as the most affordable) and I punch in 3 bedroom with 2 bathroom with a maximum of $650,000 (what I would qualify for as a mortgage at the MAXIMUM unless I robbed a bank), I come up with 7 properties. So obviously it isn’t 0 and there are some.

Now I do the same over Surrey Central, and I get 24. I do the same over Fleetwood and I get 42. I now drop that number down to $350,000 the price I paid for my townhouse, and in Kits I get 0. Mount Pleasant, 0. Downtown Vancouver 0. Marpole, 0. Brentwood 0. East Hastings… right 0. Langley around Willowbrook.. 54. Fleetwood 36. Hmm… so I have all that choice for a 3 bedroom place at $350,000 and _0_ choice anywhere close to or in Vancouver in that price range and even factoring high insurance ($300 a month), fuel ($200 a month), oil, and strata, it works out cheaper than in Vancouver, I start to question the basis in reality for these studies.

In practice they just don’t seem to ever jive. Too often I see them assume the workers living in the suburbs work in Vancouver when the reality is statistically only around 35% of the jobs in metro-Vancouver are in Vancouver, so that means your average person in the suburbs doesn’t work in Vancouver at all and more often will work out in the suburbs. That’s according to stats Canada itself. But the studies always seem to assume suburb worker works in Vancouver.

They also again seem to always ignore what people can actually qualify for at the bank. I would challenge anyone to walk into a bank and say “Hey I can afford that $700,000 mortgage because when you factor in transportation and transit and stuff, according to a study out of SFU/UBC/Insert Institute here, it is more affordable on paper.” and the bank will laugh and kindly ask you to leave.

And not only that, they always seem to assume people that live in Vancouver don’t own cars when they is categorically false!

At the end though, and if you’ve gotten this far in my massive post congrats, I do think areas of Vancouver are more affordable than we are lead to be but only for certain demographics. That’s what this and other studies seem to not portray. If you focus on 20-30 year olds, single or with a spouse, no kids or maybe 1 kid, living in a 1 to 2 bedroom unit, then parts of Vancouver DO start to open up. If you want a 3 bedroom house or townhouse and raise a family with 2 or more kids, I am sorry but Vancouver is not affordable any way you slice the numbers.

The studies also seem to use average instead of median for a lot of things without qualifying those statistics… I won’t start on statistics which are far too often manipulated to make a point or satisfy an agenda.

The truth is, in reality, in the real-world, the suburbs are more affordable than living in Vancouver the vast majority of the time.

In reality.

April 29, 2013

Jesse Hausner

One other point I forgot to mention, not sure about your study above but the other 5 I read took numbers based on people living in houses and townhouses today but didn’t take into account the fact that many of them actually purchased their properties 15-20 years ago. What do I mean? Well a consultant I work with owns a house in Kits. His house is worth $1.1 million and he is raising his family with 2 kids there. So if I factor in the house price today, what he and his wife earns, and then come to a conclusion that “see someone can raise a family of 2 in Kits no problem so MYTH SUBURBS ARE MORE AFFORDABLE HAR!!!!” I’d be completely wrong.

He purchased his house 15+ years ago for $250,000. So his mortgage was for that amount. Take him out of the equation and have someone in his exact same situation try to buy that exact same house TODAY at $1.1 million and guess what, he couldn’t qualify or afford to own that place.

But they ignore the fact that most people that own homes in Vancouver purchased them 15-20 years ago when housing was still affordable. That isn’t the reality today unfortunately. Studies like the above, to truly be based in reality, have to assume buying a new house today at today’s prices using today’s income.

Again the above study doesn’t actually link to its numbers used for calculation so I don’t know if it took that into account, but given it comes to similar conclusions to the other studies that didn’t take that into account, I can only assume the usage of data is flawed unfortunately.

Drummond Drive – “affordable” at $10 million plus – what planet do you live on?

Great “evidence” that building transit lines to Surrey has greater benefit of makingnhousing more affordable vs. Broadway corridor where it does nothing to improve affordability (unless you are a multi-millionaire and can move to Drummond Drive)

Thanks for your comments. As life has gotten in the way, I’ve been a bit late responding. Here it goes:

Assumptions: Our assumptions are detailed in our final report (link is in the article). We used MEDIAN household income, not average income for the exact reason stated. The average household size varies across the region, but we did not assume it was 1 nor did we assume there was one income earner. The median household income factors in multiple income earners. A household income numbers with housing and transportation costs per households.

Housing size is something that varies and something we didn’t look at in this report. It is definitely something worth looking at seeing which areas are affordable for yuppies, small families and large families.

On housing costs in Vancouver: Our data was taken in 2006. The picture has changed significantly since then if you are looking to buy a house. This is why our findings don’t jive with what many of you are experiencing right now. Prices are currently overinflated in some cases with more that 50% of the value being speculation. However, I believe this is anomalous and prices are starting to drop to more reasonable levels.

What I’m trying to say is that our study reflects more the bigger, long-term picture of what affordability looks like that doesn’t change with housing bubbles. It may not be useful right now if one is looking to buy a house, but I think it would still be especially useful if one is looking to rent as rents don’t vary as much as housing prices.

Obviously, if one is looking to buy now they should look at the market, but if one is crafting housing and transportation policy, they should look at the fundamental conditions.